Top quality municipal bonds finished steady to weaker on Monday, traders said, as the market watched events unfold in the commonwealth of Puerto Rico and Atlantic City, N.J.
Debt News
Things calmed down in New Jersey after Atlantic City Mayor Don Guardian announced the city had made its $1.8 million debt service payment for May. Late Friday, the mayor had brought up the prospect of defaulting on the debt. The city now faces the prospect of a vote on Thursday by the State Legislature on a takeover of its finances.
In Puerto Rico, the situation remained murky as the Government Development Bank was defaulting on its May bond payments at the close of business Monday. Puerto Rico has a total of $470 million in debt due of which $423 million is from the GDB, according to Moody's Investors Service. About $400 million of the GDB payments due Monday are principal. A release from the GDB Sunday night indicated that it would pay interest, but not principal Monday.
In the release, the GDB said it reached an understanding on restructuring terms with a group of bondholders who own about $900 million of its outstanding debt. As part of the understanding, the bondholders and the GDB will negotiate over the next 30 days and forbear from any lawsuits related to the May 1 payment during these talks.
On Monday, Gov. Garcia Padilla held a press conference to detail the situation and to also say the island will not be able to make its July 1 bond payments if Congress does not step in to help the commonwealth.
The GDB's short-term debt was trading higher on Monday, according to Markit.
The Series 2011H senior note 5s of 2023 were at 27.25 in trades valued at about $3.1 million; the Series 2012A senior note 3 5/8s of 2017 were at 30.00 in trades valued at about $1 million; and the Series 2011I senior note 4.35s of 2018 were at 28.50 in trades valued at about $2 million. At the end of April, Market had valued these notes at about 23.00.
"Based on observed trades and quotes, investors are viewing these negotiation efforts as a positive," a Markit analyst said, "with GDB bonds up between four-seven points from previous levels."
Meanwhile, some of the commonwealth's general obligation bonds were trading lower, according to Markit. The Series 2014A GO 8s of 2035 were yielding 13.04%, up from 13.02% previously.
Secondary Trading
In broader market activity on Monday, munis were little changed. The yield on the 10-year benchmark muni general obligation rose one basis point to 1.62% from 1.61% on Friday while the 30-year muni yield was unchanged from 2.58%, according to the final read of Municipal Market Data's triple-A scale.
U.S. Treasuries were weaker on Monday. The yield on the two-year Treasury inched up to 0.79% from 0.77% on Friday, while the 10-year Treasury yield gained to 1.86% from 1.83% and the yield on the 30-year Treasury bond increased to 2.72% from 2.68%.
The 10-year muni to Treasury ratio was calculated at 86.9% on Monday compared with 88.5% on Friday, while the 30-year muni to Treasury ratio stood at 95.0% versus 96.6%, according to MMD.
Previous Week's Actively Traded Issues
Revenue bonds comprised 52.11% of new issuance in the week ended April 29, down from 53.59% in the previous week, according to Markit. General obligation bonds comprised 40.46% of total issuance, up from 39.88%, while taxable bonds made up 7.43%, up from 6.53%.
Some of the most actively traded issues by type were from California issuers, according to data released by Markit.
In the GO bond sector, the California 3s of 2036 traded 26 times. In the revenue bond sector, the California SCDA 5 1/4s of 2056 traded 56 times. And in the taxable bond sector, the Riverside USD, Calif. 4 1/4s of 2036 traded 27 times, Markit said.
Primary Market
Municipal bond traders are set for the week's scheduled $8.17 billion of new supply, which consists of $6.45 billion of negotiated deals and $1.72 billion of competitive sales.
Action kicked off Monday as RBC Capital Markets priced the Dormitory Authority of the State of New York's $219.29 million of Series 2016 A, B, C and D school district revenue bond financing program revenue bonds for retail investors. The DASNY bonds will be priced for institutions on Tuesday.
The $193.440 million of Series A bonds were priced to yield from 0.75% with a 2% coupon in 2017 to 3.14% with a 3.125% coupon in 2036. A term bond in 2039 was priced to yield 3.26% with a 3.25% coupon. The 2016 maturity was offered as a sealed bid. The 2034-2036 and 2039 maturities are insured by Build America Mutual, totaling roughly $735.5 million.
The $14.770 million of Series B bonds were priced to yield from 0.54% with a 2% coupon in 2016 to 1.67% with a 5% coupon in 2024. The $7.465 million of Series C bonds were priced to yield from 0.54% with a 2% coupon in 2016 to 1.67% with a 5% coupon in 2024. The $3.610 million of Series D bonds were priced to yield from 0.58% with a 2% coupon in 2016 to 1.72% with a 5% coupon in 2024.
The Series A bonds are rated A-plus by Standard & Poor's and AA-minus by Fitch Ratings except for the 2034-2036 and 2039 maturities which are rated AA by S&P. The Series B bonds are rated Aa3 by Moody's Investors Service and AA-minus by Fitch; the Series C bonds are rated AA-minus by S&P and Fitch; and the Series D bonds are rated A-plus by S&P and AA-minus by Fitch.
JPMorgan Securities priced the Colorado Health facilities Authority's $173.89 million of hospital revenue and hospital revenue refunding bonds for the Children's Hospital Colorado project.
The $69.26 million of Series 2016A revenue bonds were priced to yield from 0.77% with a 2% coupon in 2017 to 2.89% with a 5% coupon in 2036; a 2041 term was priced as 5s to yield 3.02% and a 2044 term was priced as 5s to yield 3.06%. The $104.63 million of Series 2016C revenue refunding bonds were priced to yield from 0.61% with a 2% coupon in 2016 to 3.16% with a 3% coupon in 2033.
The deal is rated A1 by Moody's and A-plus by Fitch.
On Tuesday, Citigroup is expected to price the Louisiana Public Facilities Authority's $150 million of revenue bonds for the Ochsner Clinic. The deal is rated Baa1 by Moody's and A-minus by Fitch.
Bank of America Merrill Lynch is set to price Whiting, Ind.'s $120 million of Series 2016A environmental facilities revenue bonds for BP Products North America, Inc., on Tuesday. The deal is rated A2 by Moody's and A-minus by S&P.
Citi is set to price on Tuesday for retail investors the Ohio Housing Finance Agency's $112 million of residential housing mortgage revenue bonds under the mortgage-backed securities program. The institutional pricing is scheduled for Wednesday. The deal is rated triple-A by Moody's.
In the competitive arena on Tuesday, Seattle, Wash, is selling three deals totaling $151 million. The sales consist of $107.54 million of Series 2016A limited tax general obligation improvement and refunding bonds; $37.75 million of Series 2016 unlimited tax GO improvement bonds; and $6.04 million of Series 2016B taxable limited tax GO improvement bonds. The Series 2016A and Series 2016B bonds are rated Aa1 by Moody's and triple-A by S&P and Fitch and the Series 2016 bonds are rated triple-A by Moody's, S&P and Fitch.
Also on Tuesday, the Dallas Community College District, Texas, is competitively selling $123.50 million of Series 2016 limited tax GO refunding bonds. The deal is rated triple-A by Moody's, S&P and Fitch.
The Missouri Board of Public Buildings is competitively selling $100 million of Series 2016A special obligation bonds on Tuesday. The deal is rated Aa1 by Moody's and AA-plus by S&P and Fitch.
